Successclick, Domain Monetization

WHAT SHOULD WE EXPECT FROM DOMAIN AUCTION SITES?

(NOTE: This article is inspired by Michael Berkens’ (Em-Bee) blog.  Please read Em-Bee’s blog article first before reading my blog article.)

Since several auction sites charge a WHOPPING 20% for sales commissions, a lot of domainers wonder what these sites do for them to “earn” that compensation. That’s a big question ALL domainers should ask themselves before submitting domains to any auction site. What will that auction site DO FOR YOU to justify taking $10,000 if you sell a $50,000 domain?

If there isn’t any glitches in the sale, and both BUYER and SELLER are satisfied, that $10,000 isn’t questioned. HOWEVER, what happens IF the sale goes awry?

Helping create the system producing a $4million online domain auction gross, I’ve wondered about the results of a domainer regarding domain auction companies/services that handle my domain purchases/sales. My questions were based mainly on these factors:

WHAT DOES A DOMAIN AUCTION DO FOR YOU IN RETURN FOR THEIR COMMISSION?

1) EXPECTATION: A contract that asks compensatory rewards for “completing” a contractual intention in the eyes of the law, expects BOTH parties to the contract to “perform” to meet the contractual requirements. If SEDO has a contract stating they will “sell a domain” and handle the transaction for “compensation” – they’ve also included a clear statement that their duties are to fulfill that expectation for their compensatory “rewards” (10% – 15% – 20% sales commission). This is a clear statement of agreed compensatory payment to SEDO for “completing” the contract and service they provide for both BUYER and SELLER.

2) If one of the parties to this contract does not “perform” according to their agreement to the contract, then by law, there are “remedies” to “complete the contractual obligations” regardless if they are “omitted” in the contract.  In a lawsuit, the Court tries to find out what those “remedies” are. IMPORTANT CONSIDERATION: Since the force of the contract is delivered and held by SEDO (not by the two parties involved in buying/selling), then the onus is on SEDO to make sure the contract of the sale is upheld. SEDO can “fail to include specific language that doesn’t describe any remedy to make the contract for the sale legitimate to protect both parties to SEDO’s agreement”, but in a court of law, if they were added to a lawsuit asking for the remedy (regardless of SEDO’s indemnifications and non-liability waivers), most courts would find that SEDO was responsible for making sure the contract THEY proffered to the parties is completed satisifactorily.  They would be responsible for making this happen because THAT’S WHY THEY’RE TAKING A COMMISSION FROM THE SALE.  SEDO can’t claim “our commission is based on marketing the domain” because that’s NOT what their contract, as a complete agreement, states. SEDO doesn’t clearly and obviously tell the parties signing their contract to sell/buy domains, that SEDO isn’t “responsible for making the sale occur”. Seems like an unfair advantage (one that courts don’t take kindly to).

3) The proper “remedy” to a BUYER after a SELLER backs out of a contracted sale is that SEDO takes immediate legal action against the SELLER so that SEDO isn’t open for damages from the BUYER/s, who have an obvious “breach of contract” if SEDO doesn’t get that domain as promised.  SEDO has promised the BUYERS that there are products selling in an auction through SEDO’s mechanism (their website). This is SEDO’s “promise to perform” to both the BUYER AND THE SELLER. Both parties that sign up for SEDO (or any auction site) with the CONTRACTUAL BELIEF that domains being sold through SEDO are in fact, for sale, and within the SEDO contract, the SELLER agrees and is contractually BOUND to sell the domain at the price agreed, and that the BUYER will pay this price for the domain at the final bid price accepted by the SELLER. SEDO is controlling the deal from start to end, and is taking a compensatory reward for the contractual expectations THEY ARE PROMOTING.

Em-Bee, I agree with your attorney’s assessment of costs in filing a lawsuit (the games that can be played by those who have the money can make the term “justice” laughable for all those who’ve been there before. Simply put, if you want to retrieve your loss legally, you’ll probably pay three times the value of that loss by using the Court).

However, there are multiple outcomes to consider if you DO go forward with a lawsuit against both SEDO and the SELLER, especially if you have more than two other plaintiffs joining in.

- You can sue SEDO for “failure to perform” according to their contract, regardless if the contract doesn’t feature a “remedy” for the failure of the “third party” to perform.
- You can ask the court to simply honor the contractual duty to perform, and request that the Defendant (in this case, the SELLER) to show “reasonable cause” why they didn’t perform according to the basic intent of the contract, which was the sale and transfer of a domain name.  The process was promoted, administrated, and controlled entirely through one entity. SEDO.  That entity had control of both parties in the contract, and for that purpose, was charging the SELLER a sales commission for this “warranty of performance” (even if that warranty is not expressly mentioned in the contract. The intent of the contract is obvious.”)
- In legal terms, there isn’t a lot of “discovery” costs involved in a simple “failure to perform” contract. The judge will quickly see the offending party’s manipulations, and either fine them or even award the case to the plaintiff/defendant, depending on who’s doing the game-playing with the legal system. I highly doubt that a lawsuit to recover a domain bought in an auction would cost more than $30k-$50k unless the defendant was out of the country. If multiple plaintiffs sued (class action or otherwise) the true “selling party”, in this case SEDO, it would quickly change the way things were done in aftermarket sales.

I personally use SEDO and have had only one problem in over 50 sales (a buyer never paid on a domain sale), but I have seen the same things happen with other domain auction sites from the BUYER and SELLER point of view. Ironically, the auction sites wipe their hands of the problem, while the BUYER/SELLER remains frustrated. This is the point where we ask ourselves “WHAT IS THE AUCTION SITE DOING TO EARN THEIR COMMISSION?” I think most domainers, if they thought about it beyond the fact “sure am glad I sold that domain” – could ask themselves “what did SEDO do to earn their commission”? “What would SEDO do for me if a legal issue came up?” “How would SEDO protect me as a BUYER/SELLER”?

My recommendation to any auction site selling domains and HANDLING the deal directly, is that they state clearly on the website homepage where the domains are being promoted “WE DON’T GUARANTEE THAT ANY DOMAIN SALE WILL COMPLETE”. That could be pretty ugly for “promoting” their services.

Instead, the auction site should just put a clause into their SELLER agreement that the SELLER will pay all attorney/court costs as the court defines, if they lose in a lawsuit.  Additionally, the SELLER agrees to give the registrar where the domain is registered the right to release the domain to the BUYER upon BUYER’s payment to the agreed escrow account.   The way SEDO (and any other domain auction site) can do this is have an agreement with as many top registrars to honor any sales of domains registered through them, by SEDO – with the promise that SEDO will pay a small percentage to the registrar of the sales commission. Done deal. Just for added affect, the SELLER contract can include a “Minimum Punitive Damage Penalty” of about, oh… $50,000.

DISCLAIMER: I just wrote this from experience and logic. I’m not an attorney, but I wish I was. My comments here are not intended to be legal advice and is in no way based in law. The above commentary is only a hypothetical suggestion and is not intended for any person to use as a legal argument. Hire an ATTORNEY!